Cloud Provider Commentary

We’ve known for a while that the volume of cloud provider mergers and acquisitions (M&As) has been growing at a decent clip, but I was still surprised to see them come so fast and furious this week from three big providers. The reported deal values weren’t jaw-dropping (in all fairness, IBM set a pretty high bar with its $2 billion SoftLayer buy earlier this year), but they hint at some of the technologies and capabilities these providers don’t want to wait around for R&D to churn out:

NTT Communications to buy Virtela for $525 million. When I covered enterprise networking more closely a few years ago, Virtela was one of those companies whose business model I always found difficult to nail down (circa 2010: “Virtualized overlay cloud networking services? Uh, yes, I totally get it”). Over the years, though, the company has done a better job articulating its message while also benefiting from a broader market interest in alternative approaches to physical networks. NTT, which has been one of the most vocal carriers discussing its SDN strategy, says in a press release that it will upgrade its network with Virtela’s network functions virtualization to “virtualize the functions of customers’ network equipment, such as firewalls and WAN accelerators.” NTT plans to offer joint services with Virtela in 2014.

NTT drops $350 million for 80% stake in RagingWire Data Centers. Not so much a direct cloud play, but it definitely contributes to NTT’s cloud expansion. The deal more than doubles NTT’s data center space in the U.S. market, and it also includes RagingWire’s patented data center management tools, which NTT plans to roll out worldwide.

CSC to acquire ServiceMesh for an undisclosed sum (well, sort of). ServiceMesh is a cloud management vendor whose core product, Agility Platform, is aimed at simplifying and automating cloud resource deployment for enterprise customers. CSC didn’t publish the terms of the deal, but the folks at GeekWire tracked down a transcript of a conference call with analysts stating that the company paid $158 million in cash and will shell out up to an additional $137 million “based on the achievement of certain performance targets.” John Madden, practice leader of IT services research at Ovum, says the deal gives CSC the “capabilities to address two key elements that must be addressed as the cloud services market continues to grow: the ability to size, deploy, scale and manage hybrid cloud environments, and the need for enterprises to have proper cloud governance within their organizations.”

Internap plans to nab iWeb for $145 million. Atlanta-based cloud and IT services providerInternap Network Service Corp announced its intention to acquire iWeb, a Canadian service provider that offers cloud, colocation and hosting services. In addition to expanding its geographic footprint, Internap says the deal will give it a stronger foothold in the SMB market for IaaS.

Rumors have been flying around about what a so-called mystery barge off the coast of Portland, Maine, could contain. Internet conspiracy theorists News outlets have been suggesting that Google could be behind the four-story structure, with the Portland Press Herald deducing that it could be a floating data center like Google is believed to be building in San Francisco Bay (a scoop that CNET got last week — well, sort of, as Google isn’t confirming any of this).

Whatever it is (or isn’t), two of our intrepid Portland-based TechTarget editors, Tessa Parmenter and Michelle McNickle, are hot on the trail. They snapped these photos Wednesday from Cassidy Point Drive in Portland, outside of Cianbro Corp, the construction company contracted for doing interior work on the barge.

Photo credit: Tessa Parmenter/TechTarget

CNET is convinced Google is behind the San Fran structure based on several interviews with locals, as well as the fact that Google filed a patent in 2009 for a floating data center. Media outlets like the Portland Press Herald are making a connection between the San Francisco structure and the Portland one based on a few (highly speculative) observations: The two structures look very similar, the clients and contents of both are veiled in secrecy, and documents point to both being built by the same company in Louisiana.

“I was contacted by someone who said he had knowledge that the project in the works is a Google store of some kind. The tipster, who is well-connected in Silicon Valley but asked to remain anonymous, told me that he had heard from multiple sources at Google that the company plans to float the Glass stores from city to city by rivers, and that the idea for the project came straight from either Larry Page or Sergey Brin, Google’s founders. Finally, he said, the idea is in part that Google wants to launch stores without looking like they are trying to chase Apple.”

A recent study revealed that 70% of all IT infrastructures will be outsourced within the next five years.

The study, commissioned by Savvis and conducted by Vanson Bourne, examined IT infrastructure trends among 550 IT decision makers across industries ranging from finance to retail in the United States, Canada, United Kingdom, Germany, Japan, Hong Kong and Singapore.

Today, 65% of IT infrastructures are in-house environments, but the study showed a shift to hybrid cloud services as enterprises look to cut costs and improve the quality of their services. According to the study, within two years colocation will be the infrastructure of choice, but within five years outsourced managed services will dominate.

The latest Research and Markets report reflects the same trend in managed services as Vanson Bourne and the market forecast and analysis report projects that the managed services market will grow from $142.75 billion to $256.05 billion in 2018.

“The next five years will bring a dramatic shift in the way organizations approach IT,” said Jeff Von Deylen, president of Savvis, in a statement. “Clearly, cloud is part of the picture but it’s not the whole picture. As businesses grow and move more IT infrastructure to outsourcing providers, they will adopt a strategic mix of colocation, managed-hosting and cloud services.”

The most popular cloud service is cloud storage, with 54% of respondents citing the use of the service. Public and private cloud Infrastructure as a Service (IaaS) were the second and third most popular services among enterprises. According to the survey, these services were popular because they were cost-effective and provided safe environments to test and develop applications.

The services most respondents want to outsource are non-mission-critical applications. Enterprises are less likely to outsource more sensitive services, such as supply chain management, finance and telecom, according to the study.

While the study indicates trends are in favor of cloud providers, enterprises won’t readily outsource to services. The Vanson Bourne study revealed major barriers that prevent enterprises from outsourcing. These barriers include concerns with security and a lack of control over the infrastructure once they make the switch. Providers should work to break down these barriers and act as a guide for enterprises.

Despite telcos’ best efforts to portray themselves as more than stodgy phone companies, enterprises looking into cloud services typically don’t consider them as their primary choice of provider. In fact, only 21% of North American respondents in TechTarget’s 2013 IT Priorities Survey said they would consider working with telecommunications companies for cloud services in 2013, compared to 55% considering managed services providers and 44% considering specialty cloud providers (respondents could choose more than one answer).

While marketing will definitely continue to play a big role in evening out the playing field, telcos still need to pursue strategic partnerships with cloud providers from those other two camps — and not just for the purpose of expanding their portfolios. Exposure to those customer bases will also be key. Fortunately for operators, they have an enormously valuable asset — their global networks — that could turn competitors into partners.

“The companies are combining CSC’s cloud services, specialized consulting and applications expertise with AT&T’s highly-secure network and cloud infrastructure platform to help global businesses move more quickly to the cloud. CSC, a recognized leader in enterprise cloud computing, will deliver its BizCloud TM and other cloud services through AT&T’s global cloud infrastructure platform and networks.

CSC, a recognized leader in enterprise cloud computing, will deliver its BizCloud and other cloud services through AT&T’s global cloud infrastructure platform and networks.

CSC will provide application expertise to AT&T and its customers.

Working with AT&T, CSC will enhance and migrate applications to enable AT&T’s customers to benefit from a secure cloud environment. AT&T will assume management of CSC’s internal network and its managed network services portfolio with commercial clients, providing CSC and its clients with a global secure network capability next-gen offerings; with AT&T’s network at the edge of CSC’s data centers, the companies will be able to deploy cloud solutions quickly for their customers.”

Tapping CSC for its applications expertise signals that AT&T may place more emphasis on cloud application integration — a particularly thorny issue for more and more customers trying to deploy a hybrid cloud strategy. And with growing interest in hybrid cloud, that could be AT&T’s end game here. Either way, it’s a smart play for AT&T as it tries to expand uptake of its cloud services beyond the carrier’s existing customer base.

Regardless of whether you want to call his actions patriotic or traitorous, former intelligence contractor Edward Snowden’s decision to leak classified documents detailing the U.S. government’s secret domestic surveillance program, PRISM, seems to have had one tangible chilling effect: Most cloud consumers who live outside of the United States say the revelations have made their companies less likely to use a U.S.-based cloud provider, according to a new survey by the Cloud Security Alliance (CSA).

Here are the key stats the CSA found:

Of the 207 respondents who lived outside the U.S., 56% said the Snowden incident has made their company less likely to use U.S.-based cloud providers, and 10% actually canceled a pending project with a U.S. cloud provider in response to the news. Interestingly, 3% said they were more likely to use U.S.-based cloud providers as a result of the incident.

Two thirds of the 220 U.S.-based respondents said PRISM would not make it harder for their companies to do business outside of the States.

Looking at the larger group of respondents that included U.S.-based and non-U.S. respondents, the CSA’s survey also reveals what cloud consumers think about the current state of transparency and surveillance in public cloud services.

Asked about their countries’ methods of obtaining user information for criminal and terrorism-related investigations, 47% of respondents said the processes today are poor because there is no transparency, and they have no idea how often the government accesses their information. About a third (32%) said the processes today are reasonable — they have some understanding of what goes on but not how often.

Most respondents thought the U.S. Patriot Act should either be repealed entirely (41%) or modified to add more oversight and transparency (45%). A smaller group (13%) thought the law should be left alone and that more education about the Patriot Act (and its international counterparts) will ease any anxieties.

CNET got an interesting scoop this week about Google that, if valid and depending on your level of cynicism, could represent the first step by a major cloud provider to attempt to circumvent the U.S. government’s domestic surveillance program and other law enforcement attempts to spy on cloud-based data. Or it could be a day-late-dollar-short response to allegations that Google gave the feds back-door access to its servers to comply with the classified PRISM surveillance program — a charge the company that lives by the phrase “do no evil” flatly denies.

Citing two anonymous sources, CNET reported that Google is testing out server-side encryption for pockets of its cloud-based consumer and business storage service, Google Drive. The report did not state whether the two sources were Google employees; a Google spokesperson declined to comment on the story.

While the report also doesn’t explicitly state that this project is a direct response to recent allegations by former National Security Agency (NSA) contractor Edward Snowden, the timing and implications are uncanny. CNET‘s Declan McCullagh writes:

The move could differentiate Google from other Silicon Valley companies that have been the subject of ongoing scrutiny after classified National Security Agency slides revealed the existence of government computer software named PRISM. The utility collates data that the companies are required to provide under the Foreign Intelligence Surveillance Act — unless, crucially, it’s encrypted and the government doesn’t possess the key.

[…]

Major Web companies routinely use encryption, such as HTTPS, to protect the confidentiality of users’ communications while they’re being transmitted. But it’s less common to see files encrypted while stored in the cloud, in part because of the additional computing expense and complexity and the difficulties in indexing and searching encrypted data.

Interestingly, a recent report from The Guardian alleged that documents Snowden leaked revealed Microsoft “collaborated closely with U.S. intelligence services to allow users’ communications to be intercepted, including helping the National Security Agency to circumvent the company’s own encryption.” The report alleges that Microsoft enabled the feds to intercept Skype calls and read encrypted Outlook.com messages. Microsoft General Counsel Brad Smith insisted in a recent blog post that The Guardian report contained “significant inaccuracies,” denying that the company provides warrantless access.

But is the damage already done for not only Microsoft, but also Google and other cloud providers? I’m not entirely convinced. Yes, security and privacy have long been top barriers to cloud adoption, and this whole debacle is one serious nail in that coffin. But if all of the revelations that have come out about PRISM haven’t yet neutered the cloud services market, I find it hard to believe the damage is irreparable. That said, it will be interesting to see how much of a difference something like Google’s reported server-side encryption project will make for consumers, as well as how business customers will react (with their wallets) over the coming months.

I admit that when I first heard about “hosted private cloud” (sometimes called “virtual private cloud”) a few years ago, I was deeply skeptical. Some providers were just re-branding their dedicated managed hosting offerings and slapping a cloud label on them. I recall one person who worked for cloud provider telling me that there was no difference between the two. Really?

The marketing around these services also struck me as a little odd. They would be billed as having “true enterprise-grade security,” which always seemed to send the message that their public cloud services were… what? Not secure? Marginally secure? Amateur hour?

At the highest level, there are two types of deployment models for cloud services: public and private. Public cloud services are designed for a market and are open to a largely unrestricted universe of potential users who share the services. Private cloud services are designed for a single enterprise and have user-defined and controlled restrictions on access and level of resource dedication.

Hosted private cloud is a composite view of two private cloud services deployment models, both of which offer customers and providers very different choices about resource dedication, tenancy cost, user access/control of the computing asset, and real and perceived security structures in place. The two HPC deployment models are:

Virtual Private Cloud: This model is an adjunct of public cloud services with shared virtualized resources and a range of customer control and security options distinct from most public cloud services. Examples of virtual private cloud service offerings include Amazon Virtual Private Cloud (VPC), IBM SmartCloud Enterprise Plus, Savvis Symphony VPDC/Open, and Rackspace RackConnect.

Now, IDC forecasts that worldwide revenue for hosted private cloud services will surpass $24 billion in 2016, anticipating that the virtual private cloud approach will be the predominant model. IDC also expects the overall hosted private cloud market to experience a compound annual growth rate of more than 50% between 2012 and 2016.

Here’s some more interesting analysis from its press release:

[T]he majority of dedicated private cloud buyers will be those companies with existing IS outsourcing or hosted infrastructure services contracts. Potential buyers of dedicated private cloud services will place a premium on off-loading the asset management burden and on operational reliability, over and above other cloud features such as scalability, granular billing, and customer self-service.

When dedicated private cloud grows, the winners are likely to be large incumbent packaged software providers and equipment providers, global systems integrators, professional services firms, and telecommunications service providers. These providers are working mightily to build single-vendor stacks, providing all the underlying components from bare metal to “trusted partner applications.” But if virtual private cloud becomes the dominant provider-based model, as IDC expects, it will be more like a public cloud model with mostly standardized, virtually dedicated assets, which means a vastly different set of vendors will benefit.

“Not even the largest technology incumbents can sustain IT market leadership without achieving leadership in cloud services. Quite simply, vendor failure in cloud services will mean stagnation,” added [Robert] Mahowald[, Research Vice President, SaaS and Cloud Services]. “Vendors need to be doing everything they can – today – to develop a full range of competitive cloud offerings and operating models optimized around those offerings.”

As we’ve mentioned before, we can’t always squeeze everything we want to in a story. So while yesterday we shared some deleted scenes from my Q&A with Michael Cohn, co-founder of Cloud Sherpas, today we bring you some outtakes from my interview with Ken Stephens, senior vice president of cloud services at Xerox.

With that in mind, I asked him to explain what his ideal cloud portal would look like.

Over the past year, I’ve heard a lot of providers talk about portals. Is there something specific that you would like to change or evolve?

Ken Stephens: We have some innovation [in our cloud portal] that we’ve developed and will introduce. I suspect we’re not the only ones [to have done so]. Because today, when you go out and you buy a computer on the Dell site, as an example, you see a picture of it. Then, you pick and choose what your options are. It prices it for you, and you hit “buy,” “move to cart” or whatever. That works pretty well for buying hardware. But buying cloud services might be a little geek-ish. [You say], “I want 4 gigs of RAM.” You have to know the technology a bit to really get what you want in the cloud. I think that’s a little complicated.

What we will introduce — and again, I don’t think we’re alone — is [a portal in which] you will be able to go out and say, “I want to run an ERP application with about 100 users. I expect performance to be high, medium or acceptable,” with some definitions around that. You will hit “submit,” and it will come back and tell you what configuration that you need to run in the cloud and what it will cost.

Then, on top of that, I’ll introduce a service in 2013 that will do a comparison. Think about Progressive Insurance — the advertisement that Progressive does all the time. You go onto their site and plug in what you want for insurance for your car. It will come back and tell you the cost from State Farm and Allstate, as well as Progressive.

We will be able to do that in our cloud. You go in and say what you want. It will say, “By the way, if you buy it from Rackspace, it costs this much. If you buy it from Amazon, it costs this much. If you buy it from us, it costs this much.

You’re going to see some innovative things, in terms of [making cloud portals] easier to use.

Our annual Q&A series with cloud providers is well underway. NTT America deemed Disaster Recovery as a Service to be the “killer app” for cloud services. Google and Salesforce.com partner Cloud Sherpas is planning to forge new SaaS partnerships that complement its current portfolio. And coming soon, Xerox will share its vision for the cloud channel.

You’ll see most of the questions in the Q&A are the same from provider to provider. But during our interviews, the conversations often go much deeper and there’s usually a fair amount we don’t publish — in this case to create some consistency and continuity for the series, but more so because we don’t expect many people to read an 1,800-word article.

It’s a painful process because there is often so much we’d like to squeeze in. Luckily, the blog is the perfect place to dig into some leftovers. Here are a few questions and answers that didn’t make the cut from my interview with Michael Cohn, co-founder and senior vice president of marketing at Cloud Sherpas.

These are out of context, so it’s a little confusing, but they pick up after he talked in the Q&A about Cloud Sherpas’ hopes for next year, saying:

In our Google business unit, we often use the term “going more Google.” We hear Google talking about “going Google,” and we talk about going more Google. This is really starting to resonate in our customer base. Our enterprise customers are now viewing Google beyond what they initially purchased — which was messaging and collaboration systems — and they’re viewing Google as a platform for enterprise computing.

When you say the customers are looking at Google beyond Gmailand so forth, do you mean they’re looking at Google App engine and services like that?

Michael Cohn: That’s exactly right. When we think about the cloud, we talk about it in terms of different layers of the cloud stack — Infrastructure as a Service, Platform as a Service and Software as a Service.

Most of our customers bought Google Apps or came to us to buy Google Apps, so they bought at the very top of that stack, and they bought it for its messaging system for Gmail. They bought it for the amazing calendar, contacts and chat, and then on the collaboration front, Google Drive and Google Hangouts and all of the productivity suite that’s in the browser. That’s why they originally bought Google and came to Cloud Sherpas. But now the advancements that are being made in the other two layers in the inside of Google’s platform really make Google much more than just a SaaS provider; it’s also a platform and infrastructure provider, and so we have customers coming back to us and saying, “What else can we do?”

We’ve got all these other applications that may still be legacy applications — a Domino environment that still may exist in the organization or SharePoint applications that are still running and so forth and so on. By bringing together everything that Google has to offer in the platform layer, we’re able to help them “go more Google.” It’s about building applications on App Engine, it’s about leveraging Google cloud storage, it’s about using the predictive API and so forth.

What do you happening on the Salesforce side of the house, with respect to this?

Cohn: Yes, so on the Salesforce side: Clearly sales cloud and service cloud are growing at a tremendous rate. Cloud Sherpas is going to be building up our capabilities in Salesforce’s core offerings of sales cloud, service cloud and Chatter, the collaboration platform inside of Salesforce.

That moment when Michael decided that he’s tired of answering my stupid questions after all.

In addition to that, Force.com is the development platform inside of the Salesforce ecosystem, and we’re seeing customer demand increase for custom applications that integrate with sales cloud, service cloud and Chatter.

As an example, it’s no shock that mobility was a very big topic in 2012, and as a result of that, Cloud Sherpas has developed a world-class mobile application development team. In fact, our developers came from the consumer space where they built iOS and Android applications that support millions of users in a consumer environment.

And so we’re bringing all of that mobile application development knowhow to the enterprise and using tools like Force.com and other mobile development capabilities. We’re able to essentially unlock data that is in
Salesforce and deliver that data to employees on mobile devices. We’re
building applications for our customers — mobile applications that integrate back into sales cloud and service cloud via iOS and Android devices.

We’ve maintained a section on the homepage called “Cloud Provider Spotlight,” which is where we call attention to news and feature stories that highlight some of the changes and innovation a specific provider or group of providers have undergone.

We’ve always used this spot to promote our own material. Now, we are opening it up to you, cloud providers. Here’s the fun part: You choose the topic. You choose the deadline. You tell the story.

If you are interested in submitting an article for SearchCloudProvider.com, we are happy to consider it. We have a few rules of the road, however, so please read the following before submitting anything:

We are only accepting submissions from companies that sell or resell cloud services. We are not accepting content from vendors that exclusively sell hardware or software to cloud providers.

Content must be original. That means we won’t publish a blog you’ve already written and changed a few words around. We will find out because, yes, we will Google it.

Submissions must be neutral and may not promote a provider’s products or services. We’re seeking subject-matter experts and thought leaders to write about technical and business issues facing cloud providers or the broader cloud market in general. We will not publish thinly or not-so-thinly veiled marketing material.

About This Blog

A blog for cloud service providers and managed service providers (MSPs). The editors at SearchCloudProvider.com cut through the hype and give their take on news and trends shaping the cloud provider strategies.